Business Ethics in the News

Who Should Pay for Maternity Leave?

Thursday, Aug. 21, 2014

Paid maternity leave, rather family leave, is just about universally considered a good practice, and one that should be supported. From promoting family life to allowing women to stay in the workforce, there are many benefits, but there has been an unintended consequence. Family leave policies can lead to discrimination against women, as firms hire male counterparts to avoid the higher leave costs associated with female employees. Many have framed the problem as “how do we remove the incentive to discriminate against women?”

But I think something is missing from this debate: should companies bear the cost of family leave in the first place? Or should the taxpayers pick up the tab in the form of a tax break or government assistance?

To start, it must be said that providing paid family leave may very well be in the company’s long-term economic interest. For one, paid leave encourages women to return to their previous roles, sparing the company the cost of hiring and training a replacement. Further, these types of benefits establish something more than a purely transactional relationship with employees, where the worker feels no affiliation or commitment to the company.

But the question gets more interesting if we presume that paid family leave is bad for the company’s bottom line, which many think is the case. To answer this, one must consider the role that corporations play in society, rather corporate social responsibility. Two perspectives dominate the debate.

The first, stakeholder theory argues that the corporation has responsibilities to all stakeholders — all which are affected and contribute to the corporation’s success. Proponents of the theory claim that doing so often leads to maximizing shareholder value, despite no longer considering it the only criteria of success. Under this view, a company can attempt to balance the interests of their employees with those of the shareholder, perhaps justifying the provision of paid family leave.

Another view of the corporation is that exists purely to maximize shareholder value. In many ways, the legal basis for most corporations supports this conclusion, under the notion of fiduciary responsibility; that is, the corporation must act in the best interest of the shareholders, the owners of the company. From this, the answer to our question appears to be no, companies should not be expected to provide family leave if it is against their economic interests. Given this interpretation, the government should step in to cover the cost, or perhaps create a mandatory paid leave requirement, effectively taking the decision out of business’ hands.

Mandating that companies provide paid leave seems to be a convenient way out of having to address this dilemma: society no longer expects them to provide paid family leave, the law demands it. But this solution begs the question, and inadvertently takes a stand on the issue above: corporations should bend (and can be forced to bend) to serve public interests. This is not new. The minimum wage, health care coverage requirements, and other legislation are other examples. But the question remains, is this fair to business owners?

The point here is that regardless of the outcome chosen, we are at the same time defining what the corporation is and its role in society. A fact that should be front and center in this debate.